1917: Income tax paid for the war

Amorette Allison
Star History Columnist

War was expensive and the first modern one was proving to be quite a bit more expensive than any the United States had been involved in before. The USA had joined World War I late but since the country had a small standing army and very little in the way of modern weaponry, getting the U.S. military up to speed was expensive. 

“Liberty Bonds,” rather like a savings bond, were sold but they couldn’t cover all the expenses of the war. So that meant taxes.

During the Civil War, the United States had passed its first income tax.

A Supreme Court decision in 1895 complicated the matter so the income tax faded away. In 1913, the Constitution was amended to allow income tax.

So Congress started taxing its wealthier citizens. At the time it started, the tax was one percent and only for those earning what were, by the standards of the time, very healthy incomes. Other taxes, like import tariffs, were modified at the same time in various complicated ways but income tax was going to become the country’s primary source of income.

In 1917, those rates were raised and the income being taxed was lowered. People earning only $2,000 a year were taxed. Depending on your calculations, that is probably between $40,000 and $70,000 in today’s money. 

The taxes went up to 2-4 percent for most earners. However, if you were wealthy, earning say, $2 million in 1917, the rate jumped from 13 percent to 67 percent. Since the average person in 1917 made less than 50 cents an hour, there weren’t a lot of millionaires.

They complained but they paid. 

In the Miles City Star, on Oct. 6, 1917, an interesting list appeared on the front page. 

“Those Taxed in War Bill Are Notified,” read the headline. However, a subhead went on to say “Government will not take initiative in getting returns, but those concerned must communicate with nearest revenue officers.” 

They weren’t getting off, though. Anyone who didn’t “take the initiative,” would be penalized. Tax “slackers” were seen as unpatriotic because the money was going to support the war effort.

There then followed a list of “Those Concerned.” Which meant those who needed to contact those revenue officers. The list follows: 

“All individuals receiving incomes more than $1,000 a year.”

“All corporations, joint stock companies and associations.”

“All distillers, rectifiers, wholesale and retailers, holders of distilled spirits intended for sale or to be used for manufacturing purposes.”

“All dealers in fermented liquors or malt liquors; wines, cordials, liqueurs, domestic and imported.”

“All dealers in soft drinks, table waters, and carbonic acid gas.” (Carbonic acid gas made carbonated drinks. It was added just before serving in 1917.)

“All manufacturers and dealers in cigars, cigarettes, tobacco, snuff and cigarette papers.”

“All dealers in life, marine, inland, fire and casualty insurance.”

“All manufacturers and wholesale dealers in motor vehicles of every kind, musical instruments, motion picture films, jewelry, boats, sporting goods, perfumes, cosmetics, medicinal preparations, chewing gum and cameras.”

“All proprietors of amusement places, including cabarets.”

“All persons executing legal documents of any type.”

“All traders of produce or stock exchanges or boards of trade.”

“All importers of merchandise.”

“All manufacturers or importers of playing cards.”

If you think about the list, two groups are being hit by these taxes. There were unnecessary items like playing cards and soft drinks which a person could do without. Transactions that effected mostly the wealthy, like lawyers and stockbrokers, were also taxed.

The goal was for the average person to pay as little tax or as much as they wanted, depending on what they wanted to pay for what were often called “sin taxes,” and for the wealthy to face a greater burden.

The combination of items taxed is odd, though. Those playing cards were held separate from everything else. I think it may be because they had always been historically taxed.

But motor vehicles, musical instruments, motion picture films, etc., is an oddly broad category. I guess they were luxuries and, in the case of motor vehicles and motion picture films, relatively modern things that were definitely seen as not part of ordinary life, yet.

Sin taxes survive today, on things like playing cards and liquor. Taxes for movie admissions are no longer listed separately on the ticket but they were up through World War II so you know that extra five cents or so wasn’t going to a greedy theater owner but to the government.

Nobody really likes to pay taxes, although everybody enjoys the benefits. In 1917 they were looking for a way to do it fairly.

A century later, we are still fighting wars and we still trying to figure out how to tax people fairly.

(Amorette Allison is a history columnist.)